A Seller’s Most Costly Mistake

I recently read a disturbing article in the San Francisco Chronicle, which reported that over half the homes that sold in the Bay Area over the past year were not offered for sale on the Multiple Listing Service—they were private sales. A homeowner mentions that he plans to move, word carries, and before he knows it someone approaches him to buy the home. Or he receives a Realtor’s marketing flyer advertising that she has buyers ready to purchase in that neighborhood; one agent puts the deal together without exposing the property to the market, and the sale is done. I guarantee that when this happens somebody loses, and it’s usually the seller.

The idea of going with that first person who approaches you and just getting it all over with quickly is appealing. You might think you’ll save money on commissions and won’t have to prepare the home for sale or let strangers traipse through it. But here’s why you don’t want to do that:

Exposure to the market through Multiple Listing, ads, and the Internet results in competition. Competition produces higher sale prices. Sellers have lost tens of thousands of dollars because of inadequate market exposure. Read on.

There won’t be a bidding war.

The buyer, knowing there is no competition (no one else offered), gets pickier about property condition.

When the lender’s appraiser views the property to justify its sale price and there is only one offer, he’s not as likely to support (what you hope is) a price higher than your neighbor’s.

And then there are the practical matters of having only one agent representing both sides, known in real estate parlance as “dual agency.” According to the California Association of Realtors, a dual agent owes both the seller and the buyer “a fiduciary duty,” defined by the National Association of Realtors as: loyalty, confidentiality, and disclosure (plus a few other things). Let’s look at loyalty first.

“Loyalty prohibits a broker from accepting employment from any person whose interests compete with, or are adverse to, his principal’s (client’s) interest.”* A listing agent is supposed to negotiate the highest sale price and fewest repairs for the seller. A buyer’s agent is expected to get the lowest sale price and most repairs for the buyer. Tell me how those aren’t competing interests. How can only one agent reconcile both sides’ interest as effectively as he should?

Confidentiality: “A real estate broker must keep confidential any information that might weaken his principal’s bargaining position if it were revealed.”* A dual agent can’t use any “scoop” to the seller’s (or buyer’s) advantage. Who benefits? As a Realtor, I want to negotiate hard for my client with whatever information I get.

Disclosure: A seller’s agent must reveal to the seller “information concerning the ability or willingness of the buyer to complete the sale or to offer a higher price.”* A buyer’s broker has a duty to disclose to the buyer “The willingness of the seller to accept a lower price, and any facts relating to the urgency of the seller’s need to dispose of the property.”* One agent cannot fulfill those responsibilities to both the seller and buyer in the same (dual agency) transaction.

Basically, with dual agency, you’re paying an agent to just be a “middle man,” move papers back and forth, and not advocate for you to his highest ability. As if that weren’t enough, whichever party brought the (only) Realtor to the table likely has a prior relationship with that agent. Maybe they’re even friends or family. Dual agency is legal in California, and 99.999% of agents practice it. It is also statistically the single biggest cause of lawsuits in California.

But, you say, the agent will charge less commission if he represents both sides (a relationship that can happen even if the home does go on Multiple Listing). Actually, from what I’ve witnessed, the agent won’t reduce the commission much (Realtors like dual agency because it does pay them more), but it can cost you, the seller, thousands in the representation you sacrifice. Three properties in my neighborhood recently sold for approximately $50,000 over asking price. Think that would have happened if only one (dual) agent was involved and the home sold without being exposed to the market?

The solution: If someone offers to buy your home before you expose it to the market, have your agent put it on MLS, give that buyer a “first right of refusal,” market it for a week, and if the initial buyer wants to beat the best price and terms you garner by putting your listing out there, let him then purchase your home using his own broker (not yours). You’ll net a higher sale price, do fewer repairs, and the buyer will be much less likely to come back and bite you after escrow closes.

4 comments on “A Seller’s Most Costly Mistake”

Cathy, you have written a good article. Sellers do unfortunately take the easy way out too often. In Tennessee, we cannot practice dual agency. Either the agent represents the seller or the buyer or become a facilitator and represents neither party. Too often here sellers do take the first offer, or they may only receive offers for only a few hours or a day or so. Again, they are cutting themselves short and other potential buyers out of a buying opportunity.

Hi, David! Thanks so much for your great comment – and for reading! Tennessee is far ahead of California on the ethical issue of dual agency. It’s hard to believe California still allows it. You reinforce my faith in my fellow Realtors!

This was an informative read. I stumbled across the fact that in Australia buyers and sellers are both represented by the same person – and was shocked to hear this. I was checking out some blogs to see if a similar thing existed in North America. Interesting concept with dual agency… not the same, but similar. I think how the disclosure of this relationship is handled is what truly affects the outcome to the end user – aka the buy and seller.

Hi, Andrew! Thanks for commenting. Most of the Realtor lawsuits in California are over dual agency. Many of my clients hire me because I won’t do dual agency. I don’t know how an agent can argue effectively for both sides. Lawyers can’t!